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Gazprom Split Back on Table

Pressure on Gazprom is intensifying, after domestic rivals Rosneft and Novatek teamed up to demand the Russian gas giant be split in two, with one unit responsible for production and the other for transport. And with its monopoly over LNG exports already under threat, the energy ministry is now said to be considering loosening Gazprom's stranglehold over pipeline sales to Europe to meet EU market liberalization rules. The fighting is expected to escalate until a compromise is reached, with no one willing to predict the outcome. 

The Kremlin has over the past few months reportedly held several closed-door meetings on the Gazprom restructuring proposal with Gazprom CEO Alexei Miller, Rosneft's powerful boss, Igor Sechin, and representatives from Novatek, Russia's biggest independent gas producer. WGI understands the idea is being promoted by Sechin and Gennady Timchenko, a key Novatek shareholder. Both men are close to President Vladimir Putin, and although their relationship has cooled recently, they are apparently united in promoting their own gas interests (WGI Apr.17'13). 

The restructuring plan was first raised 10 years ago and has since made regular reappearances, but has always been successfully rebuffed by Gazprom. This is largely because of support from Putin, who said as recently as last year it was unworkable as the gas transport business couldn't survive independently -- unlike the Russian oil industry, where Rosneft produces oil, while state Transneft operates the pipelines. Other supporters include Prime Minister Dmitry Medvedev, who chaired the Gazprom board for seven years, and his team. 

But the situation has changed. For one thing, the restructuring calls are now being orchestrated by Sechin, possibly the most powerful man in Russia's energy industry, and influential Novatek shareholders. For another, a restructuring should allow Russia to comply with EU Third Energy package rules stating that a company's production and supply business in the EU must be separate from its pipeline business. That argument may prove crucial at a time when Gazprom is under investigation by the European Commission for alleged anticompetitive behavior in eight supply markets, and for its alleged attempts to influence the development of future European gas infrastructure (WGI Jan.2'13). 

On the other hand, analysts say that pleasing Brussels is probably the last thing Putin wants to do. The Russian leader has repeatedly said Gazprom is being unfairly treated in Europe, and that the state will not bow to Brussels' demands. Experts also say there are arguments in favor of increasing government support for Gazprom at a time when it faces mounting pressure from key customers for price concessions to maintain market share, not weakening it through restructuring. 

Still, the European argument is definitely a big consideration. The energy ministry is drawing up documents that envisage giving independent producers access to Gazprom's export pipelines -- not only the existing Nord Stream line under the Baltic Sea, but the proposed South Stream pipe under the Black Sea. This would conform with EU rules on open access, but at this stage is far from becoming reality. 

Analysts say the current discussions, news of which has been deliberately leaked, are part of the ongoing rivalry between Gazprom, Rosneft and Novatek on both the domestic and, more importantly, export markets. Although Sechin and Timchenko seem to be in a strong position, Gazprom is not defeated yet. Talks on the liberalization of LNG exports, initiated by Novatek last year and then taken up by Rosneft, have yet to yield results, with Deputy Energy Minister Kirill Molodtsov saying recently that a final decision should be taken by the end of the year. The consensus is that the outcome will be a compromise that avoids having Russian gas producers compete with one another abroad, one analyst says. The energy ministry said recently it might act as a supervising body to coordinate LNG flows to avoid competition. 

"The LNG export liberalization request was a first step in a campaign initiated by Rosneft and Novatek, with talks on Gazprom's restructuring and access to its export pipes being the next steps," says Alexei Grivach, deputy head of consultancy National Energy Security Fund. He doesn't expect any major decisions soon. "Gazprom’s opponents seem to be testing the ground with new proposals. Having failed to get LNG export rights immediately, they’ve decided to try to initiate public discussions on other issues to see how those proposals will be treated and add some pressure on Gazprom." 

Any decision will ultimately be taken by Putin, who has so far adopted a balanced approach to the sensitive issue. Temporarily, at least, he appears to have distanced himself from the fighting between Gazprom and Rosneft, and is believed to be waiting for the two to present him with a compromise (WGI Apr.17'13). 

By Nadezhda Sladkova

www.energyintel.com, April 24, 2013 


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Analytical series “The Fuel and Energy Complex of Russia”:

State regulation of the oil and gas sector in 2023, 2024 outlook
Gazprom in the period of expulsion from the European market. Possible evolution of the Russian gas market amid impediments to exports
New Logistics of Russian Oil Business
Russia’s New Energy Strategy: on Paper and in Fact
Outlook for Russian LNG Industry

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